Property

The new breed

The way we work is changing, in part due to technology and in part due to millennials, who have taken flex hours and working from home into new arenas. The way we live is also changing due to skyrocketing prices and the “solution” of microflats—which co-living is responding to. Not much even needs to be said about the way we shop. All of those elements, each of which has its own, singular property asset, are changing the way we invest.

Taiwan is one of Hongkongers’ favourite regional vacation destinations. The language is familiar, costs are reasonable, and it’s only an hour away. As an investment, however, Taiwan, specifically Taipei, is flirting with unaffordability that rivals the SAR. Pricey London and New York are still major investment targets among affluent, experienced investors (read: 50+). Japan, South Korea, Vietnam and Malaysia, however, are prime alternatives. Meet the next generation of real estate investors.

Affordable Cool

Ask an expatriate (likely now permanent) resident what brought them to Hong Kong and there’s a good chance of hearing “It looked cool in a movie.” Regardless of what we tell ourselves, the media culture we’ve found ourselves in has an influence on how we live. In the 1950s it was magazine advertising. Now it’s simply another kind of cultural metric. Hong Kong’s young investors are impacted, crucially, by out of control property prices here at home, where the government has suggested making peace with the idea of living in 200 square feet apartments—gross. They’re also impacted by popular culture that they feel connected to, and which in some cases offer a feasible investment.

South Korea, Japan and Malaysia are freehold locations that Hong Kong investors have been looking at more intensely in recent years. The so-called Korean Wave hasn’t really translated into more transactions in (primarily) Seoul and Busan, but enquiries are up. South Korean property is stymied by heavy regulations, several taxes (though none as high as Hong Kong’s) and fresh cooling measures this year, targeted at speculators. Average prices in Seoul now sit at approximately KRW600 million (HK$4.4 million), leaving plenty of cash left for scads of K-pop and K-drama purchases.

Korea may be hipper, but the continuing appeal of Japanese property rests on favourable currency, rising tourist numbers, and a fondness for key locations like Tokyo, Osaka and ski town Niseko—where arrivals topped 800,000 in 2015, matching brand name resorts in North America and Europe. Jonathan Cheng, CEO of Infinity Capital Group, argues that hints of growing interest are from across the region, not just the SAR. “People buy Japanese properties for a few reasons. We develop a number of high-end projects in Niseko and such luxurious holiday homes in ski resorts are driven more by desire rather than by need,” says Cheng. “Most of our buyers come to Niseko because they have fallen in love with the area; it’s hard not to.” A great deal of the increasing interest is rooted in options that do not include skiing, like onsen experiences and Michelin-starred dining. Increasing urbanisation, high tenancy and (relatively) low prices have made Tokyo a good choice for young investors looking for rental income.

Investing in the Future

Then there are the pragmatic investors who are keen to start a portfolio based on practical goals. While millennials have yet to dip their toes into the market, the thirty-something set is indeed investigating Vietnam. “Younger investors from Hong Kong have turned to Vietnam to buy while they may choose to rent [at home] due to the high prices,” says Do Thi Nguyet Anh, assistant marketing manager of International Residential Sales at Savills in Vietnam. “Most of our buyers tend to be in their late-30s and above, and thus have extra cash, and will invest it into Vietnam due to the promising growth of their capital.”

Cheng echoes the sentiment pointing out that Hong Kong’s sky-high home price to income ratio has sent clients to Japan looking to augment their incomes. “It appears that some have given up hope of ever owning a property in Hong Kong,” he notes. “Some of these investors therefore look for higher rental yields overseas, using such returns to pay off rents for themselves in Hong Kong, and still find themselves in a positive net position.”

It’s never too soon to start planning for retirement, and though no hard numbers are recorded, anecdotal evidence supports the idea that Thailand, more often now, Vietnam, for its low cost of living, and Malaysia are on the radar for Hongkongers’ golden years. Malaysia’s MM2H (Malaysia My Second Home) programme is still in force, with MYR500,000 (HK$1 million) buying a 10-year unrestricted visa — ideal for retirement. A high standard and low cost of living, close proximity to Hong Kong, and good medical care win the country a lot of points. According to Malaysia’s Tourism, Domestic Trade and Consumerism Committee, Johor Bahru is the destination of choice for MM2H applicants, where the programme’s minimum investment will get purchasers a flat or terraced house anywhere between 1,200 and 1,600 square feet.

Not all is smooth sailing. Language barriers, especially in Korea, pose significant challenges to understanding other markets and truly exploiting local knowledge. Japan has only recently started issuing property materials in English, and Korean investment is still dominated by institutional players that engage global agencies like JLL and Knight Frank in transactions. “Faced with so many complications and difficulties, it’s understandable why some first-time overseas buyers may feel intimidated and end up throwing in the towel,” admits Infinity’s Cheng, adding “We offer a number of structured financial products and solutions for our clients… negating forex risks, reducing the required capital outlay and enjoying safe and guaranteed returns.”